Pharmaniaga plunges into blackhole as share price sinks 50% on PN17 news

Pharmaniaga Bhd, a major supplier of pharmaceuticals to government hospitals, saw its share price plummet 50% from 44 sen at yesterday’s close to a low of 22 sen and had fallen under the Practice Note 17 (PN17) classification.

The stock has since pared its losses, inching its way up to 26 sen at 10.58am (an 18 sen or 42% drop from yesterday’s close).

The massive sell-down shaved RM242 million from the group’s market capitalisation after it confirmed yesterday it had fallen under the PN17 classification for financially distressed companies.

This follows the company’s largest ever quarterly net loss of RM664.39 million in the fourth quarter ended Dec 31, 2022 (Q4 FY2022) from a net profit of RM85.47 million a year ago.

The net loss was driven by a RM552.3 million impairment on unsold Covid-19 vaccines, as well as a write down on the goodwill of its Indonesian manufacturing cash-generating units of RM50.3 million.

Hong Leong Investment Bank downgraded the counter to a “sell”, cutting its FY2023 and FY2024 earnings forecasts by 51% as it raised the operating expense and finance cost assumption on Pharmaniaga.

Source : FMT

Pharmaniaga Can Go Bankrupt

Pharmaniaga classified affected listed issuer under Practice Note 17 (PN17)

Triggered PN17 criteria pursuant to audited financial statements 2022

PN17 no core business, failed min capital, equity, shareholders’ funds
to submit regularisation plan to Securities Commission within 12 months

2022 (FY22) net loss RM607.3mil against net profit RM172.15mil

Revenue fell to RM3.51b from RM4.81b in FY21.

Had to provide RM552.3mil on stock of vaccines

Source : Permadu Blogpost

Source : Outsyed The Box

May Severely Disrupt The Supply Of Medicines To The Public Health System

The inclusion of Pharmaniaga Bhd into Bursa Malaysia’s Practice Note 17 of financially-distressed companies represents a wake up call for the pharmaceutical sector.

It highlighted the need for urgent reforms particularly on the public sector’s procurement of medicines, said the Galen Centre for Health and Social Policy.

“The situation affecting Pharmaniaga is very worrying and has potentially severe implications across the entire Malaysian pharmaceutical landscape, especially the public health sector,” said Gallen Centre chief executive officer Azrul Mohd Khalibtoday.

“If the company deteriorates further, there could be a massive disruption to the supply of medicines and drugs to the public health system,” he added.

Azrul said the situation affecting Pharmaniaga exposed vulnerabilities in the current public health sector’s pharmaceutical procurement processes and highlighted the need to undertake long argued for reforms in this sector.

“There is a need to emphasise on the importance of competition, diversity of providers, getting rid of tender agents as middlemen, and reducing government interference.”

He said Pharmaniaga had enjoyed an exclusive concession for more than a quarter of a century to purchase, store, supply and distribute at least 700 pharmaceutical products under the Approved Products Purchase List (APPL).

This represents more than a third of the government’s branded and generic drug and medicine supply.

“This GLC also has the logistics and distribution contract for these medicines. The government’s practice of exclusive concessions which grants individual companies such as Pharmaniaga and other GLCs major influence and dominance over large portions of our healthcare system, including hospital services, creates an unhealthy dependence.

“These companies will be considered indispensable and become too big to fail. Our public healthcare system is at risk of massive disruption when those GLCs run into difficulty. This is one such example,” Azrul pointed out.

In 2019, he said, the government had made a commitment to move away from concession agreements and adopt open tenders.

But this was disrupted by the Covid-19 crisis and Pharmaniaga had multiple extensions.

“Unfortunately, any aspiring or potential local competitor or alternative to

Pharmaniaga would have already rightly been discouraged from investing in participating in such tenders as the APPL, even if it were to offer better value.”

He said the reform could also include removing dependence on tender agents, acting as middlemen within the procurement process, who charge commission for their services and increase the cost of medicines.

“Allowing suppliers to negotiate and bid directly with the government could potentially enable millions in public funds saved, lower prices, increase cost effectiveness and for newer therapies to be made available for patients. It will introduce improved diversity of suppliers and reduce vulnerability,” Azrul said.

He said for now, Pharmaniaga’s classification would not cause an immediate and complete disruption in its current ability to service the public health sector.

However, the situation could change rapidly if the financial situation does not improve within the next year.

“It is unlikely that Pharmaniaga will be able to offload the majority of its Sinovac Covid-19 vaccines worth RM552.3 million, which reportedly expire in June 2024.

“Better understanding of the performance of Covid-19 vaccines and the disease, have resulted in significantly decreased demand for this vaccine from countries in the region.

“Pharmaniaga’s stock must also compete with the new generation of bivalent Covid-19 vaccines which are starting to become available, promising improved coverage of new variants of the coronavirus,” Azrul said.

The government, if it chose to intervene, had a number of options, he added.

“It could provide a significant cash infusion, guarantee or bailout for the GLC which will likely be in the range of RM700-RM900 million.”

“It could provide a government guarantee which Pharmaniaga could rely on to facilitate financial arrangements or obtain credit from banks or other financial institutions.

“Or it could grant yet another decade-long concession arrangement which would guarantee a significant and predictable volume of business for Pharmaniaga for years to come,” he said.

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